NUMMI implications

There’s a cloud over south Fremont, and its name is Toyota. With GM and the Pontiac Vibe out of the picture at NUMMI, Toyota had been silent about the plant’s future until last weekend. That’s when the #1 automaker in the world, which up to this point has never closed a plant, announced that the plant may indeed shut down for good. The leading question from that outcome, within the narrow scope of this blog, is of course, Does that open up a ballpark site in Fremont?

Before I answer that, a little history is in order. NUMMI arose from the remains of a plant that built various incarnations of the Pontiac GTO, among other vehicles. The GM-only plant shut down in 1982, then returned in 1984 as a joint venture between GM and Toyota. The mission was to employ Japanese production methods at an American plant. Since the (re)opening of the plant, it has built millions of vehicles, mostly the popular bedrock Tacoma pickup and Corolla sedan. GM offerings included the ill-fated 80’s-era Chevy Nova, the Corolla-twin Geo Prism, and the Vibe. The problem with NUMMI really boils down to this:

Nummi, the only large auto-assembly plant on North America’s West Coast, has the capacity to make 420,000 cars and pickups each year. It only made money in 1992, the result of California’s taxes and labor and pollution rules, as well as the plant’s UAW contracts, according to an estimate by Tokyo-based Credit Suisse Group AG analyst Koji Endo.

Now before you start blaming the UAW for this, let’s keep the labor costs in perspective. NUMMI team members make $29 an hour. Their counterparts at non-union Toyota plant in Kentucky make $25-27 an hour, in Texas it’s $21-25 an hour. That difference can be chalked up to cost-of-living as much as anything else. Cost-of-living for Toyota at NUMMI can’t be denied. Taxes are high, prohibitively so for many companies who choose to leave California. If Toyota is truly serious about shutting the plant down, over 5,000 jobs will be lost.

Last year, Toyota put the kibosh on reports that it was in talks to build the hybrid Prius model at NUMMI. This came as plans emerged for a new factory in Mississippi – those plans are now stalled, with the Prius production going somewhere else. It would appear that the door is open for the Prius, which is equally revered and detested as the darling of Bay Area freeways. Unfortunately, Toyota’s writing may have been on the wall when it came out with lower-than-expected pricing so that the car could better compete with Honda’s newly released Insight hybrid.

From an outsider’s standpoint, the only thing that could save NUMMI is – that’s right – massive federal money. The Department of Energy handed out 1/3 of its $25 billion in advanced technology loans last month, including $460 million for Tesla. Tesla has already committed to building its Model S sedan in SoCal, but it plans to build its battery and drivetrain factory somewhere in the Bay Area. The factory would employ less than 500. Ford got a whopping $5.9 billion to better improve fuel economy of its entire line, while Nissan got $1.6 billion to retrofit a plant in Tennessee in anticipation of one or more electric cars. Toyota received nothing (not to say that they didn’t apply). Toyota may be up for one of the next two rounds, and if that’s the case, a major infusion of cash to get NUMMI up to Prius production standards may be in order. Knowing what hangs in the balance, I can only imagine that locals and union officials are lobbying Congressman Pete Stark and Senators Barbara Boxer and Diane Feinstein to get the ball rolling. Couple that with state tax breaks authorized by Governor Schwarzenegger and the state legislature (um…), and suddenly the climate becomes much more hospitable for doing business in south Fremont. Like the initial closure of the GM plant and reopening as NUMMI, the process could take some time to hash out. There’s zero chance you’ll see Priuses rolling off the assembly line this fall.

Got that? Okay, now for the doomsday scenario. Let’s assume, God forbid, that the plant does close for good. Suddenly there are now 400 acres to develop in Fremont. The Alameda County Assessor’s office pegs the assessed value of the land and plant at $1 billion. The plant has plenty of historical value, which means it’s not getting demolished anytime soon. Toyota, which as mentioned before has no experience closing down a plant, would have to deal with messy, ugly divestment of the various assets at NUMMI. As the NUMMI legal arrangement is dissolved, the land will be divvied up and sold. The ripest fruit would be at the northern and southern ends, which are undeveloped. The 107-acre northern section has been considered as part of a large area where a ballpark and/or parking could be built. It’s also the parcel that NUMMI considered for a parts warehousing operation, if it wanted to run things the non-Lean, old-GM way. Since any debate of the impact of placing a ballpark there would be rendered moot, it’s suddenly a prime site. Just sell the land and bring the piledrivers, right?

Not so fast, my friends. It’s unlikely that any parcels will be designated for new development on their own without a larger development plan. Before the City of Fremont even gets to that point, they’ll probably exhaust every effort to keep some kind of manufacturing in place at the site. The last thing they’d want to do in the near term is approve incompatible development that could jeopardize that. Let’s say that Tesla becomes a major financial success and becomes a standard bearer for electric car manufacturers worldwide. Last summer they’d shown interest in a from-scratch plant in San Jose, before they caught wind of incentives that come with reusing brownfield sites. Perhaps they’d want a piece of the old plant. Who’s to say they won’t have the same concerns that NUMMI had? Given the generally low wage jobs that come with a ballpark, I’d expect the City to move very slowly on this.

The future of NUMMI, even in death, lies with Toyota. Toyota may very well close the plant, while showing no interest in selling any land. They have every right to reopen the plant at a later date when the economy rebounds. They can also dictate the pace and style of development there. Toyota has some difficult decisions to make here, and closing the plant is only the first. Should the plant close, the aftermath will not be swift, and it will be difficult.

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